Answer:
a) If Bogut plans to establish the AB Foundation once the fund grows to 1,999,000, how many years until he can establish the foundation?
future value = present value x (1 + i)ⁿ
$1,999,000 = $1,000,000 x (1 + 8%)ⁿ
1.08ⁿ = 1.999
n = log 1.999 / log 1.08 = 9 years
b) Instead of investing the entire 1,000,000, Bogut invests 300,000 today and plans to make 9 equal investments into the fund beginning one year from today. What amount should the payments be if Bogut plans to establish the 1,999,000 foundation at the end of 9 years.
future value of $300,000 = $300,000 x 1.08⁹ = $599,701
you need to save $1,999,000 - $599,701 = $1,399,299
FVIFA, 8%, 9 periods = 12.488
annual savings = $1,399,299 / 12.488 = $112,051.50
